FIRST DIVISION

[G.R. No. 129018. November 15, 2001.]

CARMELITA LEAÑO, assisted by her husband GREGORIO CUACHON ,

petitioner, v s . COURT OF APPEALS and HERMOGENES FERNANDO ,
respondents.

Eduardo R. Santos for petitioner.

Geronimo Veneracion, Jr. for private respondent.

SYNOPSIS

Private respondent Hermogenes Fernando, as vendor, and petitioner Carmelita Leaño, as

vendee, executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of
431 square meters, located at Sto. Cristo, Baliuag, Bulacan. In the contract, Carmelita
Leaño bound herself to pay Hermogenes Fernando the sum of one hundred seven
thousand seven hundred and fty pesos (P107,750.00) as the total purchase price of the
lot. After the execution of the contract, Carmelita Leaño made several payments in lump
sum. Thereafter, she constructed a house on the lot valued at P800,000.00. The trial court,
however, rendered a decision in an ejectment case earlier led by respondent Fernando
ordering petitioner Leaño to vacate the premises and to pay P250.00 per month by way of
compensation for the use and occupation of the property from May 27, 1991 until she
vacated the premises. Petitioner Leaño led with the Regional Trial Court of Malolos,
Bulacan, a complaint for speci c performance with preliminary injunction. The trial court
rendered a decision ordering petitioner to pay to the defendant the sum of P103,090.70
corresponding to her outstanding obligations under the contract to sell consisting of the
principal of said obligation together with the interest and surcharges due thereon as of
February 28, 1994, plus interest thereon at the rate of 18% per annum. Respondent
Fernando led a motion for reconsideration. The trial court increased the amount of
P103,090.70 to P183,687.00. According to the trial court, the transaction between the
parties was an absolute sale, making petitioner Leaño the owner of the lot upon actual and
constructive delivery thereof. Respondent Fernando, the seller, was divested of ownership
and cannot recover the same unless the contract is rescinded pursuant to Article 1592 of
the Civil Code which requires a judicial or notarial demand. Since there had been no
rescission, petitioner Leaño, as the owner in possession of the property, cannot be evicted.
In time, petitioner Leaño appealed the decision to the Court of Appeals. The Court of
Appeals promulgated a decision af rming that of the Regional Trial Court in toto.
Petitioner Leaño led a motion for reconsideration. The Court of Appeals denied the
motion. Hence, the present petition.
The Supreme Court dismissed the petition. The transaction between the parties was a
conditional sale, not an absolute sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total purchase price. The
ownership of the lot was not transferred to Carmelita Leaño. As the land is covered by a
torrens title, the act of registration of the deed of sale was the operative act that could
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 transfer ownership over the lot. There is not even a deed that could be registered since the
contract provides that the seller will execute such a deed "upon complete payment by the
vendee of the total purchase price of the property" with the stipulated interest. The Court
also ruled that Article 1169 of the Civil Code provides that in reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties ful lls his
obligation, delay by the other begins. In the case at bar, respondent Fernando performed
his part of the obligation by allowing petitioner Leaño to continue in possession and use of
the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in
accordance with the terms of the contract, she was in delay and liable for damages. The
Court, however, upheld the trial court in holding that the default committed by petitioner
Leaño in respect of the obligation could be compensated by the interest and surcharges
imposed upon her under the contract in question.

SYLLABUS

1. CIVIL LAW; SPECIAL CONTRACTS; SALES; THE TRANSACTION BETWEEN THE PARTIES
WAS A CONDITIONAL SALE NOT AN ABSOLUTE SALE. — Contrary to the ndings of the
trial court, the transaction between the parties was a conditional sale not an absolute sale.
The intention of the parties was to reserve the ownership of the land in the seller until the
buyer has paid the total purchase price. Consider the following: First, the contract to sell
makes the sale, cession and conveyance "subject to conditions" set forth in the contract to
sell. Second, what was transferred was the possession of the property, not ownership. The
possession is even limited by the following: (1) that the vendee may continue therewith "as
long as the VENDEE complies with all the terms and conditions mentioned," and (2) that
the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any
right, interest or equity that she may have or acquire in and to the said parcel of land nor to
lease or to sublease it or give possession to another person without the written consent of
the seller. Finally, the ownership of the lot was not transferred to Carmelita Leaño. As the
land is covered by a torrens title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the lot. There is not even a deed that
could be registered since the contract provides that the seller will execute such a deed
"upon complete payment by the VENDEE of the total purchase price of the property" with
the stipulated interest. In a contract to sell real property on installments, the full payment
of the purchase price is a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event that prevented the obligation
of the vendor to convey title from acquiring any obligatory force. The transfer of ownership
and title would occur after full payment of the price. In the case at bar, petitioner Leaño's
non-payment of the installments after April 1, 1989, prevented the obligation of
respondent Fernando to convey the property from arising. In fact, it brought into effect the
provision of the contract on cancellation.
2. ID.; OBLIGATIONS; EFFECT OF DELAY IN RECIPROCAL OBLIGATIONS; WHEN
PETITIONER DID NOT PAY THE MONTHLY AMORTIZATIONS IN ACCORDANCE WITH THE
TERMS OF THE CONTRACT, SHE WAS IN DELAY AND LIABLE FOR DAMAGES. — On the
issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that
while the contract provided that the total purchase price was payable within a ten-year
period, the same contract speci ed that the purchase price shall be paid in monthly
installments for which the corresponding penalty shall be imposed in case of default.
Petitioner Leaño cannot ignore the provision on the payment of monthly installments by
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 claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the
Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties ful lls his obligation, delay by the other
begins. In the case at bar, respondent Fernando performed his part of the obligation by
allowing petitioner Leaño to continue in possession and use of the property. Clearly, when
petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the
contract, she was in delay and liable for damages. However, we agree with the trial court
that the default committed by petitioner Leaño in respect of the obligation could be
compensated by the interest and surcharges imposed upon her under the contract in
question.

DECISION

PARDO , J : p

The Case
The case is a petition for review on certiorari of the decision 1 of the Court of Appeals
af rming that of the Regional Trial Court, Malolos, Branch 7 2 ordering petitioner Leaño to
pay respondent Hermogenes Fernando the sum of P183,687.70 corresponding to her
outstanding obligations under the contract to sell, with interest and surcharges due
thereon, attorney's fees and costs.
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee
executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of 431
square meters, located at Sto. Cristo, Baliuag, Bulacan. 3
In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of
one hundred seven thousand and seven hundred and fty pesos (P107,750.00) as the total
purchase price of the lot. The manner of paying the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00)
PESOS, shall be paid at the signing of this contract as DOWN PAYMENT, the
balance of NINETY SIX THOUSAND NINE HUNDRED SEVENTY FIVE PESOS
(P96,975.00) shall be paid within a period of TEN (10) years at a monthly
amortization of P1,747.30 to begin from December 7, 1985 with interest at
eighteen per cent (18%) per annum based on balances." 4

The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the month
of grace expire without the installments for both months having been satis ed, an interest
of 18% per annumwill be charged on the unpaid installments. 5
Should a period of ninety (90) days elapse from the expiration of the grace period without
the overdue and unpaid installments having been paid with the corresponding interests up
to that date, respondent Fernando, as vendor, was authorized to declare the contract
cancelled and to dispose of the parcel of land, as if the contract had not been entered into.
The payments made, together with all the improvements made on the premises, shall be
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 considered as rents paid for the use and occupation of the premises and as liquidated
damages. 6

After the execution of the contract, Carmelita Leaño made several payments in lump sum.
7 Thereafter, she constructed a house on the lot valued at P800,000.00. 8 The last payment
that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an ejectment case 9 earlier
led by respondent Fernando ordering petitioner Leaño to vacate the premises and to pay
P250.00 per month by way of compensation for the use and occupation of the property
from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit. 1 0
On August 24, 1993, the trial court issued a writ of execution which was duly served on
petitioner Leaño.
On September 27, 1993, petitioner Leaño led with the Regional Trial Court of Malolos,
Bulacan a complaint for speci c performance with preliminary injunction. 1 1 Petitioner
Leaño assailed the validity of the judgment of the municipal trial court 1 2 for being violative
of her right to due process and for being contrary to the avowed intentions of Republic Act
No. 6552 regarding protection to buyers of lots on installments. Petitioner Leaño
deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to cover the
balance of the total cost of Lot 876-B. 1 3
On November 4, 1993, after petitioner Leaño posted a cash bond of P50,000.00, 1 4 the trial
court issued a writ of preliminary injunction 1 5 to stay the enforcement of the decision of
the municipal trial court. 1 6
On February 6, 1995, the trial court rendered a decision, the dispositive portion of which
reads:
"WHEREFORE, judgment is hereby rendered as follows:

"1. The preliminary injunction issued by this court per its order dated November 4,
1993 is hereby made permanent;

"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70
corresponding to her outstanding obligations under the contract to sell (Exhibit "A"
— Exhibit "B") consisting of the principal of said obligation together with the
interest and surcharges due thereon as of February 28, 1994, plus interest thereon
at the rate of 18% per annum in accordance with the provision of said contract to
be computed from March 1, 1994, until the same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by
way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No.
1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.

"(sgd.) DANILO A. MANALASTAS

Judge" 1 7
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 On February 21, 1995, respondent Fernando led a motion for reconsideration 1 8 and the
supplement 1 9 thereto. The trial court increased the amount of P103,090.70 to
P183,687.00 and ordered petitioner Leaño to pay attorney's fees. 2 0
According to the trial court, the transaction between the parties was an absolute sale,
making petitioner Leaño the owner of the lot upon actual and constructive delivery thereof.
Respondent Fernando, the seller, was divested of ownership and cannot recover the same
unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a
judicial or notarial demand. Since there had been no rescission, petitioner Leaño, as the
owner in possession of the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase price is payable within
a ten-year period, yet the same contract clearly speci es that the purchase price
shall be payable in monthly installments for which the corresponding penalty
shall be imposed in case of default. The plaintiff certainly cannot ignore the
binding effect of such stipulation by merely asserting that the ten-year period for
payment of the whole purchase price has not yet lapsed. In other words, the
plaintiff has clearly defaulted in the payment of the amortizations due under the
contract as recited in the statement of account (Exhibit "2") and she should be
liable for the payment of interest and penalties in accordance with the
stipulations in the contract pertaining thereto." 2 1

The trial court disregarded petitioner Leaño's claim that she made a downpayment of
P10,000.00, at the time of the execution of the contract.
The trial court relied on the statement of account 2 2 and the summary 2 3 prepared by
respondent Fernando to determine petitioner Leaño's liability for the payment of interests
and penalties.
The trial court held that the consignation made by petitioner Leaño in the amount of
P18,000.00 did not produce any legal effect as the same was not done in accordance with
Articles 1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leaño appealed the decision to the Court of Appeals. 2 4 On January 22,
1997, Court of Appeals promulgated a decision af rming that of the Regional Trial Court in
toto. 2 5 On February 11, 1997, petitioner Leaño led a motion for reconsideration. 2 6 On
April 17, 1997, the Court of Appeals denied the motion. 2 7
Hence, this petition. 2 8
The Issues
The issues to be resolved in this petition for review are (1) whether the transaction
between the parties is an absolute sale or a conditional sale; (2) whether there was a
proper cancellation of the contract to sell; and (3) whether petitioner was in delay in the
payment of the monthly amortizations.
The Court's Ruling
Contrary to the ndings of the trial court, the transaction between the parties was a
conditional sale not an absolute sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total purchase price.
Consider the following:
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 First, the contract to sell makes the sale, cession and conveyance "subject to conditions"
set forth in the contract to sell. 2 9
Second, what was transferred was the possession of the property, not ownership. The
possession is even limited by the following: (1) that the vendee may continue therewith "as
long as the VENDEE complies with all the terms and conditions mentioned," and (2) that
the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any
right, interest or equity that she may have or acquire in and to the said parcel of land nor to
lease or to sublease it or give possession to another person without the written consent of
the seller. 3 0
Finally, the ownership of the lot was not transferred to Carmelita Leaño. As the land is
covered by a torrens title, the act of registration of the deed of sale was the operative act
that could transfer ownership over the lot. 3 1 There is not even a deed that could be
registered since the contract provides that the seller will execute such a deed "upon
complete payment by the VENDEE of the total purchase price of the property" with the
stipulated interest. 3 2
In a contract to sell real property on installments, the full payment of the purchase price is
a positive suspensive condition, the failure of which is not considered a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to convey title
from acquiring any obligatory force. 3 3 The transfer of ownership and title would occur
after full payment of the price. 3 4
In the case at bar, petitioner Leaño's non-payment of the installments after April 1, 1989,
prevented the obligation of respondent Fernando to convey the property from arising. In
fact, it brought into effect the provision of the contract on cancellation.
Contrary to the ndings of the trial court, Article 1592 of the Civil Code is inapplicable to
the case at bar. 3 5 However, any attempt to cancel the contract to sell would have to
comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer
Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-payment of
an installment by the buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force. 3 6 The law also provides for the rights
of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fty percent of the total
payments made and, after ve years of installments, an additional ve percent
every year but not to exceed ninety percent of the total payments made: Provided,
That the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash surrender value
to the buyer." [Emphasis supplied]
The decision in the ejectment case 3 7 operated as the notice of cancellation required by
Sec. 3(b). As petitioner Leaño was not given the cash surrender value of the payments that
she made, there was still no actual cancellation of the contract. Consequently, petitioner
Leaño may still reinstate the contract by updating the account during the grace period and
before actual cancellation. 3 8

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 Should petitioner Leaño wish to reinstate the contract, she would have to update her
accounts with respondent Fernando in accordance with the statement of account 3 9 which
amount was P183,687.00. 4 0
On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule
that while the contract provided that the total purchase price was payable within a ten-year
period, the same contract speci ed that the purchase price shall be paid in monthly
installments for which the corresponding penalty shall be imposed in case of default.
Petitioner Leaño cannot ignore the provision on the payment of monthly installments by
claiming that the ten-year period within which to pay has not elapsed.

Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties ful lls his obligation, delay by
the other begins.
In the case at bar, respondent Fernando performed his part of the obligation by allowing
petitioner Leaño to continue in possession and use of the property. Clearly, when petitioner
Leaño did not pay the monthly amortizations in accordance with the terms of the contract,
she was in delay and liable for damages. 4 1 However, we agree with the trial court that the
default committed by petitioner Leaño in respect of the obligation could be compensated
by the interest and surcharges imposed upon her under the contract in question. 4 2
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. 4 3 Thus, as there is no ambiguity in the language of the contract,
there is no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of Appeals
4 4 in toto .

No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes

1. In CA-G.R. CV No. 50502, promulgated on January 22, 1997, Petition, Annex "A", Rollo, pp. 15-
27, Minerva P. Gonzaga-Reyes, J., ponente, Ramon U. Mabutas, Jr. and Portia Alino-
Hormachuelos, JJ., concurring.
2. Decision, Original Record, Civil Case No. 768-M-93, pp. 146-158.
3. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106.
4. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106, at p. 105.
5. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106, at p. 105.

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 6. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106.
7. Exhibits B, B-1, B-2, B-3, B-4, B-5, B-6, B-7, and B-8, Original Record, Civil Case No. 768-M-93,
pp. 100-102.
8. Petition for Review, Rollo, pp. 3-13 at p. 5.

9. Docketed as Civil Case No. 1680.

10. Exhibit 4, Original Record, Civil Case No. 768-M-93, pp. 8-10.
11. Docketed as Civil Case No. 768-M-93.
12. In Civil Case No. 1680.
13. Annex C, Original Record, Civil Case No. 768-M-93, p. 12.

14. Receipt, Original Record, Civil Case No. 768-M-93, p. 57.

15. Order, Original Record, Civil Case No. 768-M-93, pp. 48-49.
16. In Civil Case No. 1680.
17. Decision, Original Record, Civil Case No. 768-M-93, pp. 146-158, at p. 157.
18. Motion for Reconsideration, Original Record, Civil Case No. 768-M-93, pp. 160-164.

19. Supplement to Motion for Reconsideration, Original Record, Civil Case No. 768-M-93, pp.
166-168.

20. Order, Original Record, Civil Case No. 768-M-93, pp. 169-170, at p. 170.
21. Decision, Original Record, Civil Case No. 768-M-93, pp. 146-158, at p. 155.
22. Exhibit 2, Original Record, Civil Case No. 768-M-93, p. 107.
23. Exhibit 2-A, Original Record, Civil Case No. 768-M-93, p. 108.
24. Docketted as CA-G.R. CV No. 50202.

25. Petition, Annex "A", Court of Appeals Decision, Rollo, pp. 15-27.
26. Motion for Reconsideration, CA Rollo, pp. 88-90.
27. Resolution, CA Rollo, p. 95.
28. Petition, Rollo, pp. 3-13. On December 1, 1999, we gave due course to the petition (Rollo, pp.
59-60).
29. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106, at p. 105.
30. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106, at p. 106.

31. Manuel v. Rodriguez, et al., 109 Phil. 1, 11 (1960), citing Worcester v. Ocampo, 34 Phil. 646
(1916); Tuason v . Raymundo, 28 Phil. 635 (1914); Buzon v. Lichauco, 13 Phil. 354
(1909).
32. Exhibit A, Original Record, Civil Case No. 768-M-93, pp. 105-106, at p. 106.

33. Rillo v. Court of Appeals, 340 Phil. 570, 577 (1997), citing Roque v. Lapuz, 96 SCRA 741
(1980) and Bricktown Development Corporation v. Amor Tierra Development Corp., 239
SCRA 126 (1994).
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 34. Rillo v. Court of Appeals, 340 Phil. 570, 577 (1997).
35. Rillo v. Court of Appeals, 340 Phil. 570, 577 (1997); Spouses Pangilinan v. Court of Appeals,
345 Phil. 93, 99 (1997); People's Industrial and Commercial Corporation v . CA, 346 Phil.
189, 204 (1997); and Valarao v. Court of Appeals, 363 Phil. 495, 504 (1999).
36. Rillo v. CA, 340 Phil. 570, 577 (1997), citing Luzon Brokerage Co., Inc. v. Maritima Bldg. Co.,
Inc., 86 SCRA 305 (1978).
37. Petition, Annex "A", Court of Appeals Decision, Rollo, pp. 15-27.
38. Republic Act No. 6552, Section 5.
39. Exhibit 2, Original Record, Civil Case No. 768-M-93, p. 107.
40. Order, Original Record, Civil Case No. 768-M-93, pp. 169-170, at p. 170.

41. Article 1170, Civil Code.

42. Decision, Original Record, Civil Case 768-M-93, pp. 146-158, at p. 157.
43. Palmares v. Court of Appeals, 351 Phil. 664, 679 (1998), citing Abella v. Court of Appeals,
327 Phil. 270 (1996).
44. In CA-G.R. CV No. 50202.

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